Why Can’t You Just Get It through Your Head, It’s Over, It’s Over Now

Chief Investment Officer, Model Portfolios

03/10/2023

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Why can’t you just get it through your head?
It’s over, it’s over now
Yes, you heard me clearly now I said
It’s over, it’s over now

(Boz Scaggs, from the Silk Degrees album, 1976)

Over the past few months, we’ve received many inbound calls from advisors asking us when the current rotation out of growth and into value will be “over”—as if it is a one-year phenomenon. Let’s examine that.

First, 2022, without a doubt, witnessed a massive rotation out of the growth stocks that led the market for most of the previous 10 years and into value stocks. The so-called “FAANGM” stocks (Facebook [Meta], Apple, Amazon, Netflix, Google [Alphabet], and Microsoft) were decimated over the course of the year.

Meanwhile, value stocks dramatically outperformed growth stocks—to the tune of one of the widest performance dispersions in history (two charts).

For definitions of indexes in the chart above, please visit the glossary.

This performance gap was also remarkable in small- and mid-cap stocks.

History suggests this outperformance tends to be a multi-year cycle, not a one-time phenomenon, and, in fact, the “value outperforms” regimes have tended to last longer than the “growth outperforms” regimes.

Given Fed policy and the current trend in interest rates, we see no reason to expect growth stocks to “recover” anytime soon, due to the historical inverse relationship between the two.

Finally, despite the performance gap of 2022, valuation metrics still favor value stocks for fundamentally minded investors. Here we use two large iShares ETFs, IVE and IVW, as proxies for the S&P 500 Value and Growth Indexes, respectively.

Conclusions

Many WisdomTree products and most of our Model Portfolios have a distinct value tilt embedded into them—value is one of our fundamental “DNA” characteristics.

This stood us well in 2022, as value strongly rotated back into the “market lead” throughout the year.

Given the historical multi-year cycles in the value/growth rotation, we believe we are still in the “early innings” for value. 2023 year-to-date has been more volatile, with investors and the growth factor reacting strongly to real and perceived Fed interest rate decisions, but we believe this is a volatile short-term trend and not a “re-rotation” back into growth over any extended period of time.

In other words, we think the long reign of growth stocks over value stocks “is over, it’s over now.”

Our product suite is positioned well for this value market cycle, and we remain very comfortable with our Model Portfolio positioning as well, with its tilts toward value, dividends, size and quality.

You can learn more about our Model Portfolio allocations on the WisdomTree Model Adoption Center.

Important Risks Related to this Article

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